The case for national economic sovereignty

By Mark Weisbrot, Third World Network Features, July 1999

The best prospects for economic reform reside at the national
level, not within unaccountable, colonial, supra-national institutions
like the International Monetary Fund and the World Bank.

The International Monetary Fund and the World Bank had their annual
spring meetings in Washington recently, and one thing was perfectly
clear: there is not going to be any “new global financial
architecture” in the foreseeable future. It took a Great
Depression and a World War to bring us the Bretton Woods agreement,
the system of fixed exchange rates that lasted until 1973. In the
absence of similarly cataclysmic events, the overseers of the global
economy have no need to look at the blueprints churned out by policy
wonks and think-tanks who have been jockeying for “a seat near
the table”.

In just the past two years, the inherent instability of global
financial markets, coupled with the IMF's disastrous interventions
on three continents, have pushed tens of millions of people into
poverty. But for the “Wall Street-Treasury complex”, the
crisis is over. Investors are moving back into emerging markets, the
US stock market is booming again, and fears of international financial
‘contagion effects'—from Russia's default on
international debt, for example—have subsided. Does this mean
that reform is impossible? Quite the contrary: but the best prospects
for reform reside at the national level, not within unaccountable,
colonial, supranational institutions like the IMF and the World Bank.

Many observers could not help noticing that the Chinese economy grew
by 7.8% last year, while the rest of the region fell deep into
recession or depression. Ironically, China is now helping to save the
globalisers from themselves. It has so far kept its fixed exchange
rate, rather than devaluing in order to get a larger share of
shrinking regional export markets. Instead of pursuing a
“beggar-thy-neighbour” strategy, which most analysts
believe could set off another round of currency depreciations and
crises, China has shifted resources to domestic production. The
government is spending a massive $200 billion on public works this
year—relative to their economy, an amount that is more than our
entire federal budget.

China has more autonomy to pursue rational macroeconomic policies than
most poor countries: its currency is not freely convertible, its
financial system is domestically owned and controlled by the state,
and there is relatively little foreign ownership of equities. And it
does not have to take orders from the IMF.

But the list of countries that have taken measures to protect
themselves from global financial markets is growing. Malaysia's
use of currency and other capital controls allowed it to lower
interest rates significantly over the past year and stabilise its
economy. Last year, Hong Kong placed restrictions on speculative
trading and intervened heavily in its currency and stock markets in a
successful effort to beat back an assault by hedge funds. Chile and
Colombia have used capital controls to shift the composition of
foreign investment away from volatile short-term flows to longer-term
investment and loans—measures that helped protect them from the
shocks of the Mexican peso crisis in 1995.

These are modest reforms, but they show that even small countries do
not have to simply submit to the whims and caprices of international
financial markets. Perhaps more importantly, they are signs that one
of the most important prerequisites to social and economic
progress—national economic sovereignty'is finally making a
comeback.

More than 40 years ago, most economists knew that the state had a
vital role to play in the process of economic development, and that
unregulated markets by themselves would polarise the distribution of
income and wealth and could lead to panics, crises, recessions and
depressions. They also knew that industrialisation and economic
development required some protection from international market forces
as well as planning, and that the later any country arrived on the
scene, the more state intervention it would need.

But all of this knowledge has gotten lost in the swamp of
neoliberalism, like the knowledge of the physical sciences that was
buried during the middle ages. And the neoliberal experiment has
failed much more miserably than most people know, even on its own
terms—that is, ignoring the distribution of income and
wealth. For the last 20 years, Latin America has chalked up about zero
growth per capita, as compared to a more-than- 70% increase in the
previous two decades. For Africa, the decline has been even worse,
with per capita income actually shrinking over the past 20 years.

There are many paths to economic development, but almost all of those
taken successfully in the past are currently prohibited by Washington
and its primary enforcer, the IMF, which literally makes the major
economic decisions for 75 countries. (Despite rhetorical and some
programmatic differences, the World Bank plays the same role by
denying credit to countries who resist the IMF's deadly
macroeconomic prescriptions.) The first precondition for the
advancement of the world's poor is therefore to break this foreign
stranglehold on their governments.

This is where we who live in the United States can make a real
difference. A mass movement for debt relief, led by the Jubilee 2000
coalition in Europe, Africa, and Latin America, promises to take on
the dimensions and power of the anti-apartheid movement in the
1980s. And last year a handful of progressive organisations and
members of Congress delivered the swing votes to block a $90 billion
expansion of the IMF ($18 billion from the US) in the House. The IMF
eventually got the money, but the year-long fight significantly
undermined the Fund's credibility and bargaining power throughout
the world.

As the cracks in the Washington consensus widen, there will be further
opportunities to help the rest of the world in its struggle against
economic colonialism.

About the writer: Mark Weisbrot is Research Director at the Preamble
Center <http://www.preamble.org/> in Washington, DC. This
article first appeared in the 21 June issue of The Nation.

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